Shares in China Construction Bank are set to jump nearly 50 percent in their Shanghai debut on Tuesday, beating the first-day performances of other big Chinese lenders, as analysts expect it to enjoy higher earnings growth.
The country's second largest bank by assets raised a record 58 billion yuan ($7.7 billion) in last week's public offer of 9 billion shares at 6.45 yuan each. "Taking into considerations of factors including the current market conditions, CCB's strong personal business and its relatively small portion of domestic shares, a 9.5 yuan close on the first day should be no surprise," said banking analyst She Minhua at China Securities.
The IPO of just 3.85 percent of the company attracted a record 2.26 trillion yuan of subscriptions for an oversubscription ratio of 38 times, more than double the biggest bank, Industrial & Commercial Bank of China. ICBC was oversubscribed 16 times in the Shanghai portion of its IPO last October and its A shares ended their first day of trade up only 5 percent.
The domestic offer in June 2006 of Bank of China, the biggest foreign exchange lender, was 32 times oversubscribed and the bank's A shares rose 23 percent on their first day.
"Construction Bank's outstanding business with individual clients makes its assets slightly better than those of ICBC and Bank of China," said banking industry analyst He Sheng at Changjiang Securities. CCB is also set to benefit from soaring demand for mainland China stocks which has helped the benchmark index more than double since the start of 2007.
A lack of diversification has long been a weak point in China's state-dominated banking sector. But Construction Bank is arguably more diversified than its big rivals.
It is China's largest provider of personal loans and the largest bank provider of personal housing mortgages. Its fee and commission income doubled in the first half of this year, making it one of only a handful of Chinese banks where non-interest income exceeds 10 percent of total revenues.
The bank's A shares are likely to move between 9.00 and 10.00 yuan on their first day of trade and close around 9.50 yuan, up 47 percent from its IPO price of 6.45 yuan, a Reuters poll of six analysts showed.
If the shares close at that level, they will enjoy a premium of 32 percent to the bank's Hong Kong-listed H shares, which last closed at HK$7.45. ICBC's A shares were trading at a 29 percent premium and Bank of China at a 55 percent premium.
Such a closing price would value Construction Bank at about 33 times analysts' forecast 2007 earnings of 0.29 yuan per share, or 45 times its 2006 EPS of 0.21 yuan.
That would be more expensive than ICBC's forecast PE of 30 times and Bank of China's ratio of 28, but cheaper than an average of 43 times for about a dozen Chinese banks listed on the Shanghai and Shenzhen exchanges, according to Reuters Estimates.